This information is geared toward helping you understand how the loan process works.
Please make an appointment with a loan officer or mortgage broker. They will be an invaluable source in completing your home purchase!
- Get qualified before you start to look for a home. By being pre-approved for a loan, you will know how much a lender is willing to loan to you.
- You will save time and energy in keeping your focus in the right price range, on the homes that you can afford.
- You may be able to afford more than you thought, and you'll know what all your costs will be so you can stay within your budget.
- You will have an advantage as a pre-approved buyer, because the seller will know that you can get the loan and close the deal.
- You will also save time on closing your loan, because you will have already assembled your paperwork.
- Organize your recent tax returns and financial documents. The lender will need your financial information to determine how much you can borrow. If you don't have all the paperwork, you can get copies by contacting your tax-preparer and other people who deal with your personal finances.
- Find out from your employer who is authorized to release information about your employment status. Provide the correct contact name and telephone number to the lender to avoid lengthy loan-processing delays.
- Order a copy of your credit report. Your lender will also order a copy, but you should see it first. That way, you can clear up any credit problems before you submit your loan application.
- Organize your financial records so you will be ready to complete the loan application.
Shopping for a Loan
These mortgage loans are granted by approved local lending institutions. The loan is insured to protect the lenders by the Federal Housing Administration (FHA) which operates under the Department of Housing and Urban Development (HUD). Although FHA insures the loan for the lender, the borrower pays the insurance premium.
These mortgages are 100% loans granted only to eligible veterans or their surviving, unmarried spouses if the veteran died while on active duty or as a result of a service connected disability. Although there is normally no down payment for the veteran, he/she will be liable for a loan origination fee plus a funding fee.
The Rural Economic and Community Development Administration (RECD) loans, previously known as the Farmer Home Administration (FMHA) loans, is a federal agency of the Department of Agriculture. Loans are made for low and moderate income families, and the payments and interest rates will be based on the borrower's income.
These mortgages are not insured or guaranteed by the government. The normal down payment is 20% of the sales price. However, a lower down payment may be accepted if a private insurance company will insure the loan up to the normal down payment required by the lender. This type of insurance is called Private Mortgage Insurance. When qualified, there are also 100% conventional loans available without Private Mortgage Insurance.
Compare at least 2 lenders. Look at different loan programs, interest rates and closing costs/fees. If needed, we can give recommendations.
Don't focus solely on the interest rate. Getting a low rate is important, but you won't benefit from it if you have to pay too many up-front points and other fees.
Loan Language FAQ
What is a point?
A point is a loan origination fee, or prepaid interest, equal to 1 percent of the loan amount that you pay at closing. No-point loans usually have higher interest rates but save you money at closing.
What is a credit score?
A credit score is how a lender rates your credit. People with higher credit scores usually obtain lower interest rates, so it can benefit you if your credit is good. Your credit score is a number between 400 and 900. The magic number is 620. If you score above 680, lenders will usually consider you a premium borrower. If your number is below 620, you are likely to be rejected or will need to consider a B or C paper loan.
If my credit record is less than excellent, can I still buy a home?
YES! Lenders rate loan applicants by their credit risk. Borrowers are rated from A to E, with A-rated borrowers being the best credit risks. The better your rating, the better the loan terms a lender will offer you. If your credit rating is less than an A, your best bet for getting a mortgage is to see a mortgage broker that specializes in less than A grade loans.
What closing costs will the buyer usually pay?
Buyers can usually expect to pay fees associated with getting a home loan and for other fees such as: origination fee, appraisal fee, credit report, closing fees, state taxes, title insurance, transfer taxes, inspection fees, private mortgage insurance (which protects the lender in case of buyer default), and hazard insurance. The amount of your closing costs will vary depending on the kind of loan you get and the lender, but plan on budgeting 3-4 percent of the purchase price for a conventional loan.
Documents Typically Needed for a Loan
- Last two tax returns, plus accompanying Federal W-2 and 1099 forms.
- Pay stubs for the last 30 days.
- Bank and brokerage account statements for the past two months.
- Drivers License.
- Social Security card.
Other Documents you May Need
- Recent profit-and-loss statements and related documents (if you are self-employed).
- Transcript or diploma (if you've been a student in the last two years).
- Name, address, and phone number of landlord(s) for the last two years.
- Relocation agreement (if you were transferred into the area).
- Sales contract of the home you currently own.
- Divorce or legal separation documents.
- Bankruptcy files.
- Award letter and copy of most recent check if you're on Social Security, retirement, disability, or if you receive funds from a legal settlement.
- IRA/Keogh/401(k) statements for the past three months.
- Most recent statements for all your credit card accounts.
- Title of any cars you own.
- Coupon books for any outstanding home, auto, school, or other loans.
Check Your Credit Report
You can check your credit by ordering a copy of your credit report from one of these national credit bureaus. There is normally a charge of around $9.00 for the report.
You may also qualify for a free credit report. Visit www.annualcreditreport.com for details.
Helpful Credit Information
- Pay off as much as you can on credit debt and high-interest loans. The lower your debt, the more likely it is that lenders will approve your loan.
- Don't make a major purchase (such as a car) on credit unless you have little other credit debt. Lenders will be most interested in borrowers who have the lowest debt.
- Contact creditors who have filed negative information about you. A bad mark can result from something as small as a $5.00 balance on a card you thought was paid off or cancelled. If you can resolve the problem, send a written request asking the creditor to remove the unfavorable mark from your record, and to report to you when they do so. This may take up to 90 days.
- Contact the credit bureau if a creditor has mistakenly or unfairly given you a bad mark. Document the facts and write a letter to be attached to the offending entry in your file.
- Contact the credit bureau to correct any mistakes it has made in compiling your record. Be prepared to offer documentation (for example, a letter from a creditor stating that your account is clear, or cancelled checks for payments you made).